Is it time for a 'gas tax holiday' in Canada?

As fuel prices reach record highs and drive inflation, there have been growing calls for governments to temporarily suspend or reduce gas taxes.

On Monday U.S. President Joe Biden said he's considering such a "gas tax holiday," and could make a decision as soon as this week. When asked about the idea during a press conference in Toronto, Finance Minister and Deputy Prime Minister Chrystia Freeland touted existing measures aimed at making life more affordable for Canadians.

"Our price on pollution does include an element where we return the money to Canadian families, and the amount returned to Canadian families has gone up this year," Freeland told reporters on Monday. "Having said that, we are not closing any door and we're going to watch the affordability challenges that Canadian families are facing very, very carefully and we are prepared to do more, if necessary."

Philippe Cyrenne, an economics professor at the University of Winnipeg, says the federal government could easily do more by instituting a gas tax holiday, which would save Canadians an estimated 10 cents per litre.

"A 10-cent-per litre reduction in the gas tax would save Canadians money," Cyrenne told CTVNews.ca "And given that the retail sector of the gasoline and diesel markets is competitive, this suggests most if not all the reduction in the federal gas tax would go to consumers in the form of lower retail prices."

Since 1995, the federal government has charged an excise tax of 10 cents per litre on gasoline. The provinces also charge fuel taxes, which vary widely across the country, from 6.2 cents per litre in Yukon to 14 or more cents in Manitoba (14.0 cents), British Columbia (14.5), Ontario (14.7), Saskatchewan (15.0), Nova Scotia (15.5) and Quebec (19.2).

If you fill up in Vancouver, Victoria or Montreal, those cities charge additional gas taxes. Federal and provincial sales taxes and carbon levies apply too. Natural Resources Canada has published an online chart that breaks it all down.

The federal Conservatives have called for a temporary tax break at the pumps. A handful of provincial governments have already taken action.

Alberta suspended its 13-cent gas tax in March and plans to evaluate the decision each quarter. Newfoundland and Labrador temporarily cut its gas tax by 7 cents to 7.5 cents per litre earlier in June. On July 1, Ontario's provincial gas tax rate will be lowered to 9.0 cents per litre, down from 14.7 cents; a 5.7-cent reduction that will remain in place until Dec. 31.

U.S. states Maryland, Georgia, Connecticut, New York and Florida have all made similar moves. So have the United Kingdom, Italy and Germany. The economic fallout from Russia's invasion of Ukraine has driven gas prices up worldwide. If the Biden administration goes ahead and cuts federal gas taxes, Canada will be the only G7 nation that hasn't dropped gas taxes or offered a subsidy to offset recent pain at the pumps.

"Consumers are really hurting from higher gas prices," U.S. Treasury Secretary Janet Yellen said alongside Freeland at the press conference in Toronto on Monday. "I think, while not perfect, it is something that should be under consideration as a policy to address it."

Scotiabank chief economist Jean-Francois Perrault agrees.

"You lower the price of gasoline, you lower inflation," Perrault told CTV News Channel’s Power Play on Monday. "It’s a temporary impact, obviously… But certainly, if you’re helping Canadians deal with higher inflation, one way to do that is you reduce gas taxes."

That should focus on the federal carbon tax, Cyrenne from the University of Winnipeg said.

"I think it would be appropriate to suspend or even decrease the proposed carbon tax increases until oil and hence gas prices moderate," Cyrenne explained. "The higher prices are sufficient to reduce the quantity demanded of fossil fuels, which was the purpose of the carbon tax."

Trevor Tombe, a professor of economics at the University of Calgary, acknowledges that a gas tax holiday would save Canadians money and help fight inflation, but still advises against such a move.

"Gasoline prices provide an important signal to consumers to try and lower gasoline demand," Tombe told CTVNews.ca. "It is also a very expensive policy for the government in terms of foregone revenue. The tax brings the federal government approximately half a billion dollars per month."

Tombe adds that it also wouldn't help all families in need of support.

"Instead, the government can provide targeted relief to lower and middle-income families that may be struggling with rising prices, regardless of how much they drive," Tombe said.

Most U.S. gas tax money is earmarked for road infrastructure; in Canada it is general tax revenue. While gas taxes are lower in the U.S. than Canada, both are already among the lowest in the developed world.

On Tuesday, Natural Resources Minister Jonathan Wilkinson said the federal government is more focused on lowering gas prices through other means.

"I think Minister Freeland was pretty clear in the speech she made earlier this week that we’re working on affordability," Wilkinson told reporters in Ottawa. "But we’re obviously also working to stabilize global energy prices through the work we’re doing to increase production."

With files from The Canadian Press